April 19, 2003
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The Lick Log

The House’s approval last week of an appropriations bill that spends about $58 billion in general revenue has set the stage for the final six weeks of the legislative session. Although most of the attention has been centered on the bill’s spending cuts in health and human services program, the remarkable thing is that the House got a budget out at all. That is something that didn’t happen in 1991, the last time Texas faced a severe revenue shortfall.

The fact that the House budget garnered 100 votes for final passage also tells us something about the condition of the House leadership. During and immediately following the two-week melee over H.B. 4, those critical of Speaker Tom Craddick and his leadership team were proclaiming the great GOP experiment in governing all but dead. The well-organized and perfectly orchestrated leadership presentation on H.B. 1, however, indicates a House leadership firmly in control of its agenda and purposeful in its governing philosophy. Public education and public safety were largely spared severe cuts, expansive Medicaid and CHIP programs were scaled back, and regulatory agencies were forced to swallow significant cuts. H.B. 1 may not be pretty, but it accomplishes exactly what the incoming majority said that it should.

Next up for a House majority growing in confidence is generating the $3-4 billion in revenue needed to finance the budget. First out of the box this week is controversial legislation restructuring the delivery system for health and human services and implementing a preferred drug list for state-provided prescription medicines. The legislation is being counted on to produce several hundred million dollars in savings, but health and human services advocates fear that it goes too far in consolidating both services and the power of the Health and Human Services Commissioner, a gubernatorial appointee. Passage of this bill on to the Senate, which is expected, would add a significant brick to the GOP’s plan to rebuild state government. What the Senate will do with the bill is another story, but remember that the Senate is counting the same revenue. Something has to get done.

Other revenue measures will follow, some of which would appear to conflict with the Republican majority’s political mandate. One of those measures is franchise tax reform, which continues to figure in the revenue plans of both the House and Senate. While Lt. Governor David Dewhurst has been the most outspoken about the need for a franchise tax expansion bill, the Speaker and his top lieutenants have been busy lowering expectations for the bill’s chances while looking for a way to narrow the impact of the bill to the so-called Delaware sub.

Thus far, these efforts have yielded little fruit, although there is increasing speculation that the legislation is evolving in the direction of a relatively simple “nexus” change in the current law. That change would apply Texas franchise tax to a corporation that owned an interest in a partnership doing business in the state. A further change in the current law would subject certain income paid by a Texas partnership to a non-domestic corporate owner to franchise tax as well. Although no language has yet appeared, the Governor, Lt. Governor, and Speaker are slated to meet next week to discuss the game plan for the bill. Whether the House will go along with any proposal to expand the current franchise tax to partnerships remains to be seen, but chances are probably getting better that something will at least reach the House floor for debate.

A much larger revenue bill is lurking in the background to the franchise tax debate, one that raises even more fundamental issues for House Republicans. That is the proposal to expand the state lottery to include video lottery terminals located at Texas racetracks and other venues where lottery tickets may be sold. Supporters of video lottery, including the Chair of the House Ways and Means Committee, argue that video lottery is authorized by current law and is “within the footprint” of the existing lottery. Opponents of the measure, one of whom has asked for an Attorney General’s opinion regarding its constitutionality, don’t want the state sanctioning any additional gambling.

What makes the issue so interesting is that the Lottery Commission is in the sunset process, and the bill reauthorizing the lottery is pending—you guessed it—before the House Ways and Means Committee. One wonders what the House would do when presented with a new tax, in the form of a franchise tax expansion bill, that raises only about $400 million, and a new form of gambling that raises a whopping $1.2 billion. Is the conservative vote to impose new taxes or give people an opportunity voluntarily to spend more of their money on gambling? We may get to find out in the next few weeks.

To put yet another spin on things, last week Lt. Governor Dewhurst spilled the outline of his school finance reform plan to the press, drawing a rebuke from Speaker Craddick. Dewhurst’s plan would raise roughly $8 billion by expanding the sales tax to include all services except medical services and by raising the rate from the current 6.25% to 8.25% (plus the local option 2%). The revenue would be used to reduce property tax rates by about one-half, or roughly from $1.50 to 75 cents. There would also be a new method of distributing state aid to school districts based on median personal income in the district. The whole thing would be enshrined in a constitutional amendment so that the courts couldn’t touch it. The Speaker was quick to pour cold water on the Dewhurst plan, saying that it doesn’t go nearly far enough, but experience shows that the first guy with a plan tends to get more of what he wants than anyone else. Whether it comes in the late fall of this year or the early spring of next, the school finance special session will probably start with a plan that looks a lot like the Lt. Governor’s.

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You may have noticed that there was no report last week. Our only excuse for this omission was the birth of George Eastland Christian, who decided on April 9 to make an appearance ten weeks before his due date. Mother, Dad, and Tinyfoot are all doing well. Easter will always have significant new meaning for us! Thank you for your thoughts and prayers over the last ten days. We have needed every single one of them, and we count ourselves as deeply fortunate and grateful to have friends who care so deeply for our family.